GST 2.0: Insurers lower payouts to distributors

Mumbai: Insurers are chopping commissions to distributors, together with platforms comparable to PB Fintech, after the federal government scrapped Items and Companies Tax (GST) on particular person insurance policies whereas withdrawing enter tax credit score (ITC). From October 1, firms comparable to Niva Bupa, Care Well being and ICICI Lombard started treating commissions as GST-inclusive, successfully lowering payouts by 18%. A ₹1,000 fee is now value ₹847, in response to letters despatched to distributors.

The transfer hits intermediaries in retail area coping with particular person life and medical health insurance merchandise. Medical health insurance the place commissions account for 15-20% of the ₹40,000-50,000 crore retail medical health insurance market, implying a possible ₹1,800 crore annual loss. Insurers are passing on the whole GST profit to policyholders however offsetting the ITC loss by chopping distributor payouts.

Life insurers face an identical squeeze. The business paid about ₹24,000 crore in GST in FY24, offset by ₹ 14,000 crore of ITC. With credit now not out there, the brand new two-rate system leaves them going through a ₹15,000 crore sector-wide hit, a part of which can present up in firm revenue and loss accounts and embedded values. Regardless of the exemption, prospects might not see a significant drop in premiums as insurers alter pricing to recoup misplaced credit, analysts mentioned.

“The federal government has very clearly requested insurers to not cross on any hit to prospects,” mentioned a dealer accustomed to the discussions. “They’ve as an alternative handed it on to distributors, and now we have to rethink our product combine, maybe focusing extra on group insurance policies to restrict the injury.”

Beforehand, life insurance policies attracted a number of GST rates- 18% on time period and ULIPs, 4.5% on first-year conventional plans, and a couple of.25% on renewals. Insurers might declare ITC of two.2-2.7%, cushioning margins. With that aid now gone, distributors of each life and well being merchandise are being compelled to soak up the adjustment.

The federal government had exempted particular person life and medical health insurance from GST efficient September 22 to increase penetration and ease client prices. However with enter credit gone, GST on distributor commissions, know-how and different non-salary bills now flows straight into insurers’ revenue and loss accounts. Common insurers had lobbied the finance ministry for aid on distributor commissions, arguing that since commissions are embedded in coverage premiums, they need to be exempt like reinsurance payouts. With no aid forthcoming, insurers are actually restructuring their give attention to value management by passing on the hit to distributors to handle the fallout.